Rushing v. Wells Fargo Bank, N.A.
752 F. Supp. 2d 1254
M.D. Fla.2010Background
- Clerk of Sarasota County sues Wells Fargo (successor to Wachovia) for FSIPA, negligence, breach of fiduciary duty, breach of contract, and unjust enrichment arising from Wachovia's securities lending investments.
- Wachovia acted as the County's agent to lend securities and reinvest cash collateral under the Securities Lending Agency Agreement and Wachovia Guidelines; County amended its Revised County Guidelines, with Wachovia assisting.
- Investments challenged: Altius Bonds, OONIM Notes, and Lehman Notes, all argued to violate conservative investment policies and to be high-risk or prohibited derivatives.
- As of May 26, 2010, the three investments carried an unrealized loss of about $39.8 million; Wachovia allegedly did not disclose noncompliance or rising risk.
- Wachovia earned about 40% of investment-revenue as its compensation; the County contends Wachovia breached duties by selecting/warning about the investments.
- Proceedings: Wells Fargo moves to dismiss Counts I, II, III, and V; court grants in part and denies in part, with Counts I and V dismissed and Counts II and III maintained.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FSIPA claim (Count I) lies when Wachovia allegedly did not sell securities to the County | Rushing: Wachovia aided in sale; privity exists between seller and buyer; FSIPA applicable. | Wachovia was the County's agent, not seller; no buyer/seller privity under FSIPA; holder/holding claim not protected. | Count I dismissed; no privity and FSIPA not extendable to holding/advising claims. |
| Whether FSIPA holds a private right of action for holding securities based on investment advice | Holder may recover for fraudulent investment advice under FSIPA. | FSIPA provides remedies only to buyers/sellers; holding claims not actionable. | Count I held; holding-fraud theory not recognized; FSIPA holding claim dismissed. |
| Whether negligence and breach of fiduciary duty claims are barred by the economic loss rule | Independent tort duties exist; fiduciary duties arise from broker-investor relationship beyond contract. | Economic loss rule bars tort claims arising from contractual duties. | Counts II and III not barred; economic loss rule does not bar these independent tort claims. |
| Whether Wachovia owed a fiduciary duty to the County | Broker's fiduciary duty arises from professional standards; relationship created independent of contract. | No fiduciary duty specified in contract; no separate duty shown. | Wachovia owed a fiduciary duty to the County. |
| Whether Wachovia breached fiduciary duty by failing to warn about Lehman Notes | Wachovia knew Lehman’s deteriorating condition and should have informed the County. | No obligation to predict future risk; silent defense on when/how to warn. | Breach of fiduciary duty claim as to Lehman Notes adequately pled; denial of motion to dismiss as to Counts II and III. |
| Whether unjust enrichment claim is barred by existing contract | Unjust enrichment may proceed until express contract proven. | Contract governs subject matter; unjust enrichment not allowed. | Count V dismissed; express contract covers the same subject matter. |
Key Cases Cited
- Rousseff v. E.F. Hutton & Co., Inc., 537 So. 2d 978 (Fla. 1989) (buyer/seller privity required for FSIPA remedies)
- Ward v. Atlantic Sec. Bank, 777 So. 2d 1144 (Fla. 3d DCA 2001) (holding claims may arise from investment advice under certain state theories)
- Gochnauer v. A.G. Edwards & Sons, Inc., 810 F.2d 1042 (11th Cir. 1987) (broker owes fiduciary duties to securities investor)
- Pinter v. Dahl, 486 U.S. 622 (1988) (seller's agent may be liable if solicited sale for self-interest)
- Moransais v. Heathman, 744 So. 2d 973 (Fla. 1999) (economic loss rule does not bar breach of fiduciary duty claims)